Because of hurricane destruction in the USA, we will pay a few more cents for fuel

The annual inflation continues hovering around the 3% mark (in August, consumer prices were 3.1% higher than a year ago).

Brent oil is currently being sold for about 55 US dollars per barrel, which is the highest price since April. The price of oil rose substantially over the past few days because of a hurricane raging in some of the southern states of the U.S.A. The U.S.A. is one of the largest oil producers and the hurricane made for substantially smaller production and processing of oil. It is clear that the recovery of the US oil industry is a matter of a few days, particularly because the oil infrastructure has not suffered serious damage. Yet oil price increase could persist longer, because the impact of the hurricane on the crude oil and oil products stocks is lasting [1]. The price dynamic of oil futures also supports this: the oil price for next year’s deliveries rose for a few U.S. dollars. Thus the echoes of a distant hurricane will be observed in the next few weeks also at Latvian fuel stations: the price of fuel will rise a few cents.

The global food prices dropped overall in August. With the predictions regarding the global cereal harvest improving, the prices of cereal products dropped by more than 5%. The global cereal product harvest in 2017 – 2018 could reach an all-time high, mostly because of a good wheat and barley harvest in Russia. The global prices of dairy products rose slightly, affected primarily by a high demand for butter.

Albeit fluctuating, core inflation (inflation, excluding the direct impact of food and energy prices) is gradually increasing this year. It is a reflection of the increasing impact of domestic demand on inflation, which is an expected consequence, as unemployment is dropping under the natural level and salaries steadily rising.

[1] The stocks reflect the relative strength of the demand and supply of oil products; this dynamic is closely monitored by market analysts, hence impacts oil price.